How The DATA Act Drives Innovation

The rise of Big Data in the public sector has sparked innovation, driven efficiency, and fueled economic development. Its transformative potential will shape the future citizen engagement and reshape the relationships between residents and government, especially at the local level. And it is about to dramatically change the public sector M&A landscape as well.

Recently, President Barack Obama enacted the nation’s first open data law, signing the DATA Act that requires federal agencies to publish their spending data in a standardized, machine-readable format that the public can access through USASpending.gov. This legislation will drastically improve the public’s access to federal spending data by expanding the universe of information the government is required to post online. Rep. Darrell Issa, chairman of the House Oversight and Government Reform Committee and also a key sponsor of the legislation, said the law “marks a transformation in government transparency by shedding light on runaway federal spending.” While the DATA Act directly impacts the federal agencies, state and county governments are already outpacing the federal activity when it comes to transparency and openness. City and county governments race to develop new apps and services more easily access government data, monitor performance and potentially unlock billions in annual economic value (McKinsey Report 2013).

We believe the DATA Act and the movement toward more government transparency will have a deep impact on the public sector tech market. We see a surge of companies focused on tools around performance measurement and improved services. These companies employ business models that provide significant growth potential and attractive recurring revenue business models. Public companies such as Tyler Technology and Constellation Software have long enjoyed their position in the public sector market, but this market is undergoing dramatic change. A large number of new entrants, many of them private equity-backed, see big opportunity to transform governments and create powerful new tech companies by providing innovative tools to the public sector. We expect to see a flurry of M&A transactions over the next 12 months as strategics become more aggressive in their acquisition programs and PE firms become more active. We also expect a renewed interest in IPO filings as a result of the changing landscape.